This episode explores the potential for stagflation in the U.S. economy and the Federal Reserve's likely response. Against the backdrop of slower growth and stickier prices, former Dallas Fed President Rob Kaplan argues that several factors, including government spending cuts, regulatory reviews, and decelerating immigration, contribute to this risk. More significantly, the uncertainty surrounding tariff levels makes it difficult to predict the extent of the economic slowdown and the resulting cost shock. Kaplan suggests the Fed will likely "kick the can" in the May meeting, delaying any major policy decisions until they have more data in June. He emphasizes the importance of maintaining a consensus within the FOMC and avoiding pre-commitments to political pressures. For instance, Kaplan highlights the need for the next Fed chair to be perceived as independent from the administration. The discussion concludes with an analysis of the implications for global investors, suggesting that while the U.S. still holds significant economic strengths, some warranted reallocation away from dollar-denominated assets is occurring.
